the competition of water transportation direct from foreign countries. Witnesses representing the railroad companies defend the practice chiefly on this ground. They also justify low export rates on the ground that thereby the markets for American products are extended. It is asserted that unless special export rates for American grain were made, it could not be sold in Europe in competition with grain from India, Argentina, and other sources. While the railroad companies could not afford to haul all of the traffic at the same rates which are sometimes made for export and import commodities it is asserted that these low rates do not involve an absolute loss. The amount of traffic of a railroad can be increased without increasing the fixed charges, and even a considerable part of the ordinary operating expenses do not vary much with the amount of traffic handled. If the railroad companies can cover by their rates the actual additional cost of operation necessitated by hauling these goods, with a moderate profit, it is to their advantage to take the traffic, and ultimately the result may even be a reduction of the domestic rates. It is also asserted that ordinarily no city or community is injured by the diversion of traffic from it through export and import rates, since the traffic would not be hauled at all unless such low rates were made. Reference should be made to the preceding volume on transportation for a discussion from the standpoint of the shippers of flour as to the effect of export grain rates on their business.1

3

Carload rates. It appears from the testimony of several witnesses that it is a common practice on the part of the railroad companies to make lower rates on goods carried in carload lots than those shipped in smaller quantities, the difference in some instances being greater than the mere difference in the cost of handling would justify. The merchants of New York complain of the discrimination between carloads and part carload rates, especially in the Southern territory. The representative of the New York Merchants' Association asserts that the changes in the Southern classification in 1900 increased the number of carload ratings, and increased the difference between them and part carload rates. He holds that this makes it in many cases almost impossible for Northern merchants and manufacturers to ship directly in moderate quantities to retail dealers in the South, and gives an unfair advantage to the jobbers in the Southern trade centers, who can bring in goods at the low carload rates and distribute them to the smaller towns in less quantities.

In reply to this it is stated by the representative of the Southern classification committee that the Southern classification makes fewer carload ratings than the official and Western classifications, and that the Southern railroads have not especially attempted to build up the interior points by carload differentials to the disadvantage of Northern cities.

The fact that the interests of the shippers and merchants in different sections of the country as to railroad rates often differ greatly is evidenced by the attitude of the Pacific coast jobbers, which is precisely the opposite of that of the New York merchants, in that the Western merchants insist that they should be allowed sufficient carload differentials to permit them to control to a considerable extent the jobbing trade of the Pacific coast. This matter is alluded to in another connection.5

Subsidiary freight and traffic organizations-Private cars.-It appears from the testimony of several witnesses that the system of fast freight lines is becoming a less important feature of the transportation business than it was formerly. In many instances in the earlier days cars were owned by separate corporations, which operated over several railway systems and which aimed especially to facilitate through

1 Vol. IV, pp. 69-77 of Digest; Ripley, pp. 299, 301; Thomas, p. 557; Greene, pp. 484, 485, 487; Markham, p. 431; Stubbs, p. 761.

2 Langley, pp. 861-863.

3 Langley, pp. 862.

4 McGovern, pp. 662-665.

> See below; Wheeler, p. 744; Stubbs, p. 758.

shipments.

At present it is stated that most of the so-called fast freight lines are merely cooperative arrangements between the railroad companies for the purpose of conveniently handling through freight and of establishing trade names in the soliciting of business.1

On the other hand, it is stated that private shippers in very many instances own cars, especially those of a peculiar character, such as refrigerator cars, for handling their own goods, while in other instances there are important corporations whose sole business is the operation of such special classes of cars. The railroad companies pay rental for the use of these private cars. The shippers of California fruit, in particular, are disposed to complain of the high charges made by refrigerator companies and to favor the operation of refrigerator cars by the railroad companies directly. Mr. Stubbs, of the Southern Pacific Company, however, doubts whether this change would prove as advantageous, either to shippers or to the railroad companies.3

Railway clearing houses.-Mr. Nicholson, manager of the Central Railway clearing house, Buffalo, describes in considerable detail the methods of accounting by that organization, which has charge of the division of revenue as regards through freight on practically all lines passing through Buffalo and Niagara Falls. The system secures great economy and accuracy in the adjustment of balances between the different railroad companies, and also facilitates the keeping of revenue and operation accounts by the separate railway systems. For a further description of the methods employed reference should be made to the digest or the original testimony.*

DISCRIMINATIONS IN RESPECT TO PERSONS.

Professor Ripley, Professor Parsons, Mr. Wilson, of the Cincinnati Board of Trade, and two or three other witnesses assert that the practice of granting personal discriminations of various kinds in favor of certain shippers still exists in many cases, although they admit that the evil is less serious than formerly. Professor Parsons considers the practice of granting discriminations as a strong argument in favor of Government ownership, and asserts that it does not exist in countries where the government operates the railroads. This witness alludes especially to the recent investigation by the Massachusetts railroad commission regarding discriminations on the roads in that State, particularly in local traffic not subject to the interstatecommerce law. He asserts that it was shown that secret rebates and reductions in rates ranging from 10 to 73 per cent had been made, and that the practice was almost universal. Allusion is also made to the evidence as to discriminations in favor of the Standard Oil Company by underbilling of cars, by fixing rates from points where that company has refineries lower than those from the refineries of independent competitors at other points, and in other ways.

Professor Ripley declares that rates on through shipments from New England to the West were being cut very heavily during 1900 and 1901, in part because of the tendency toward the accumulation of empty cars at the seaboard. Mr. Wilson asserts that railway discriminations are much more common than the public believes. A representative of the San Francisco Chamber of Commerce says that the transcontinental railroads formerly cut rates secretly, in order that they might thus overcome the differential of 10 per cent which the Canadian Pacific had forced the railroads to allow. He says that the San Francisco merchants agreed not to ship over the Canadian Pacific and that rate cutting then ceased. An officer of the Southern Pacific Company thinks that the railroads east of the Missouri River may have cut rates in some cases on account of this differential.

1 Nicholson, pp. 724-731; Griswold, pp. 613-614; Guillaudeu, p. 446; Talcott, p. 635.

2 Adams, p. 386.

3 Stubbs, p. 769; Wheeler, p. 754.

4 Nicholson, pp. 719-726; Digest, pp. XCVII, XCVIII.

5 Ripley, pp. 287-289; Teisberg, p. 366; Wilson, pp. 695, 697; Parsons, pp. 126-134; Wheeler, p. 748

Several witnesses assert that discrimination by railroads is the greatest of all possible evils to shippers, and that it makes less difference whether the rates are high or low than it does whether they are uniform or otherwise. The enormous power of railroads over the prosperity of individual businesses is emphasized. It is also declared that discriminations are nearly always in favor of large shippers, of the strong against the weak, and that trusts and combinations have been especially fostered by them.

The methods of discrimination are referred to by some of the witnesses above named and also by two or three representatives of railroads. It is stated that secret rebates are still made, sometimes by methods which it is impossible to detect. Sometimes the discrimination is by an underclassification of freight or by underbilling. In certain instances shippers deceive the railroads regarding the classification of goods, and railway officers assert that it is very difficult to prevent this practice, although inspectors are maintained for that purpose. Mr. McGovern, a representative of the railroads, holds that railroads seldom connive in underclassification or underbilling of goods. It is also asserted that railroads sometimes agree to pay cartage in order to secure traffic of particular shippers.1

Mr. Langley asserts that the recent advances made in the various railroad classifications do not apply, in general, to articles made by great combinations, but affect those produced especially by smaller establishments.2

Several railway officers and others maintain that the granting of discriminations has been very greatly reduced, especially within the past year or two, when the prosperity of the railroads, as well as the agreements and community of interest which have been established between them, have tended to minimize the practice. These officers in several cases admit by contrast with present conditions that discriminations have hitherto often existed, even in the face of the interstate-commerce law. The fact that a number of railroad men urge the advantages of the consolidation of railroads, community of interest, and pooling, especially on the ground that such establishment of harmony will do away with the secret discriminations which result from excessive competition for traffic, is also, of course, an admission of the existence of the practice. A representative of the Pittsburg Chamber of Commerce declares, however, that that body abandoned its transportation board, which had aimed especially to prevent discrimination, because there were no complaints.3

DISCRIMINATION BETWEEN PLACES-LONG AND SHORT HAUL RATES. Generally.-Professor Ripley, Professor Parsons, Mr. Wilson, of the Cincinnati Board of Trade, and one or two other witnesses, criticise the practice of the railroads in making discriminations between places, and particularly in making unduly low rates for larger towns where competition between carriers is active, while maintaining excessively high rates for intermediate places which are not subject t› competition. It is declared by the witnesses above named, and incidentally by some others, that the railroads very generally make the rates to competitive points much lower than those to intermediate points. The interstate-commerce act prohibits railroads from charging more for a shorter haul over the same track than is charged for a longer haul, unless the circumstances be dissimilar. Water competition has been held by the courts to constitute a difference in conditions justifying a lower rate for the longer haul. It is stated by several witnesses that the railroads in many cases, more particularly in the South, make these lower rates for the longer haul to points where there is no water competition, but only where there is competition between

1 Ripley, pp. 286-290; Griswold, p. 623; Nicholson, p. 726; McGovern, pp. 672-674. Langley, pp. 867-870.

Markham, pp. 432, 433; Griswold, pp. 614, 615; Talcott, p. 627; Nicholson, p. 728; Greene, p. 487; Woodlock, pp. 463, 464; Anderson, p. 639; Dunlap, pp. 2, 4; Stubbs, pp. 762, 765.

*Ripley, pp. 296, 297; Wilson, p. 695; Parsons, p. 136.

different railroads. It is asserted further that the railroads thus possess an enormous power over the prosperity of communities, and especially that they attempt constantly to build up the larger towns at the expense of the smaller ones. The undue aggregation of people in the cities is considered by some of these witnesses as an evil in itself. One witness argues that under Government ownership of railroads the motive to make such discriminations between places disappears. Others, in alluding not only to the discriminations in favor of larger towns, but to those between certain cities and sections themselves, declare that the railroads assume an unjustifiable degree of paternalism, and that they ought not to deprive cities and sections of their natural advantages of location and resources by making rates which put other less favorably situated places on an equality.1

Southern basing-point system.-Mr. Wilson in particular discusses the long and short haul discriminations in the Southern States. The railroads, he asserts, have adopted almost universally what is known as the basing-point system, giving lower rates to certain competitive centers than to smaller noncompetitive points, even those nearer the point of origin of the traffic. In theory these basing points have been established by water competition, but in practice unduly favorable rates are given to many towns where there is no water competition, greatly to the detriment of the smaller places. Mr. McGovern, of the Southern classification committee; Mr. Markham, of the Illinois Central Railroad, and two or three other railway officers2 admit the existence of this practice in the South, and admit that basing-point rates have been extended to places where there is no water competition. They assert that railroads reaching towns not subject to water competition have insisted on the right to establish rates which will enable those towns to do business with others having water competition. As railroads have been constructed and towns have grown up, these favorable rates have been extended from one to another with a view to creating jobbing centers from which the surrounding territory may be supplied. Mr. McGovern insists that it would not be just to require the railroads to grant as low rates to smaller places as they are forced to make to these competitive points. Mr. Markham presents the same argument, but lays a special stress on the influence of coastwise and river transportation in the forcing of the establishment of low rates to trade centers. He says that although in some instances no boats are operated on rivers reaching these centers, the mere possibility of establishing such means of transportation forces the railroads to make low rates. This witness especially maintains that the intermediate communities are not harmed by the granting of low rates to competitive points. The railroad could not get the through traffic at all unless it made such rates, so that it can not be said that the traffic is diverted from the small towns. The through business may not contribute to the fixed charges of the railroad, or may contribute proportionally less than the local business, but it does leave a profit after paying the added expense of transportation which it actually causes, and by means of this profit the railroads are even enabled to reduce rates to the intermediate points below what they would otherwise have to be.

Alleged discrimination against Middle West in rates to Southern States.-Mr. Wilson, a representative of the Cincinnati Board of Trade, asserts that the railroads leading from the North to the Southern States have discriminated against Cincinnati, Chicago, and other Middle Western cities in making rates. He says that formerly Cincinnati did a very large business in the distribution of goods through the South, but that when more railroads were built competition became active until an agreement was reached in 1879 between the railroads from the Eastern cities and those from the Western cities as regards the Southern traffic. By this agreement the Eastern roads were to maintain low rates on manufactured articles which would favor the cities of the Eastern seaboard, while the roads leading South from the Ohio River were to be

1 Wheeler, p. 745; Wilson, p. 695.

2 McGovern, pp. 678-680; Markham, pp. 436-439; Dunlap, p. 2; Talcott, p. 629.

given control of the traffic in grain, packing-house products, and similar articles. Since 1879 manufacturing business has moved westward, and these Western cities now demand-but, according to Mr. Wilson, demand in vain-concessions in rates which will enable them to compete fairly with the Eastern cities in the Southern markets. The witness gives numerous instances of the wide difference of rates from the Eastern and Western cities to the South. Thus, while the distance from Cincinnati to Atlanta is only 54 per cent of the distance from New York to Atlanta, the rates from Cincinnati to Atlanta are 94 per cent of the New York rates, and still greater differences exist to some other points. A suit brought by the Western shippers before the Interstate Commerce Commission, with a view to securing more favorable rates, is still pending before the Supreme Court of the United States. Mr. Wilson says further that there is some conflict between the interests of some of the Western cities, Chicago and Cincinnati especially acting together, while Louisville and St. Louis seem indifferent to this movement. The witness also holds that St. Louis has been favored in rates on agricultural products to the South, as compared with Cincinnati. It is the hope of Cincinnati people that the lease of the Cincinnati Southern Railroad, a road which was built by the city of Cincinnati to facilitate its Southern trade, to the Cincinnati, New Orleans and Texas Pacific Railroad, which is controlled by the Southern Railway, will do away with the motive on the part of the Southern Railway to discriminate in favor of the Eastern points which it reaches.1 To these complaints regarding discriminations against Cincinnati it is replied by Mr. Guillaudeu, of the Old Dominion Steamship Company, that the volume of trade from these Western cities to the South is rapidly increasing, and that the Eastern railroads feel that the rates made by the Western lines are even more favorable than those from the Eastern cities. It is also held that the competition of coastwise steamship lines largely determines the rates made by the Eastern railroads.2

Alleged discriminations against Pacific coast cities.-In the spring of 1901 a case was being heard before the Interstate Commerce Commission, involving the freight rates from interior cities to the Pacific coast. The jobbers of St. Louis, Chicago, and other Middle West cities were undertaking to secure an order from the commission directing that the rates from those cities to the Pacific coast should be lower than those from New York and the Atlantic seaboard, on the ground that the distance is shorter. They also demanded that the considerable differentials, which had been made by all of the transcontinental railroads except the Northern Pacific and Great Northern, in favor of carload lots as against smaller shipments, should be reduced in order that the Middle West jobbers might more readily ship goods directly to retailers on the Pacific coast. A third demand was that the rates on certain similar classes of articles, which have hitherto been different, should be made the same in order that several classes might be shipped in a single package at a rate lower than that previously charged on the highest rated article in the package, a change which would also facilitate small direct shipments to coast towns. These demands were opposed by the San Francisco merchants, particularly by the Pacific Coast Jobbers' Association, and also by several of the transcontinental railroads.

Mr. Wheeler, representing the Pacific coast jobbers, and Mr. Stubbs, representing the Southern Pacific Company, were heard before the Industrial Commission, but no testimony of the representatives of the other side of the case was taken. Mr. Langley, of the New York Merchants' Association, testifies briefly on the same subject, agreeing in the position taken by the two other witnesses. Mr. Wheeler and Mr. Stubbs maintain that, although the distance from the Middle Western cities to the Pacific coast is considerably less than the distance from the Atlantic seaboard, the low cost of water transportation justifies a low rail rate from seaboard to seaboard to meet water competition. It is held that the rates from the Middle Western cities to the Pacific coast ought to be even higher than those from the seaboard. At present

16A

-II

1 Wilson, pp. 687-694.

2 Pages 447, 448,